With quasilinear preferences, the equivalent variation and the compensating variation in income due to a tax are the same.

Question

Quizplus · Accepted Answer

This is true because with quasilinear preferences, the utility from non-income goods remains the same before and after the tax, so the cost of the tax is just the amount of income lost due to the tax. Therefore, the equivalent variation and the compensating variation are the same.

With Quasilinear Preferences, the Equivalent Variation and the Compensating Variation